Archive for July, 2009

There is another way of looking at the quadrant diagram I have drawn: that is to view it in cross section. It then looks like this:

This is the cross section of this diagram, which has no one plotted on it, as described in this blog:

Absolute poverty (A) or deprivation is at bottom of the U shaped diagram. It is broad because the scope for deprivation is large. It is however shallow. Once in this situation you cannot go down much further. Put simply, death might be the alternative.

Above absolute poverty there is relative poverty. This is little broader than the area of deprivation, but the depth is considerably greater. The reason is simple. Here the return on relatively small additions in achievement yields considerable rewards for the person who enjoys them.

Above both there is an area of relative abundance, where we have sufficient. In terms of area it is broad. In depth it is no more than that for poverty. In this area the return in well being for additional achievement diminishes. It does not disappear though. Even when the limit to potential is reached, as shown by two vertical lines on the diagram, there remains a return to be made from additional effort. This is not surprising. Those whose enquiring minds have driven them to the limits of current knowledge will still want to know more. But to achieve that might just not be possible. This is the reality that the diagram represents.

So what, you might ask of the previous blog? Does the fact there are limits to achievement constrain emotional, intellectual or spiritual potential? In theory it does not. But there is a much more practical constraint on these: our own predispositions and abilities define the constraints of our own achievement in these areas. We can approach, and might even occasionally reach our potential in all three areas but we can do no more than that, for if we suggested otherwise we would simply have incorrectly defined our limits. As such in all three quadrants our achievement will be within the constraints of the outer circle that indicates the limits of our potential.

This though is not true of our potential to consume material goods. Here we do not know the limit of our own ability. We can waste that which should reasonably belong to others. We can consume that which should belong to generations that should follow us, knowingly or unknowingly. But however we look at it we can actually do this:

This is important. First, the fact that we can consume more than we should if we are to act either equitably or sustainably has consequences. We remain finite, even if we consume more than we should. That excess consumption does not create 26 hours in a day. It does not mean we can either receive more from or give more to our emotional relationships. In fact, the reverse is likely. The time spent consuming material goods does not just create waste in the sense that others are deprived of what is rightfully theirs: it denies us the chance to do all we might to achieve a balanced lifestyle. I propose something quite simple: to the extent that we over consume materially we constrain our ability to achieve in other aspects of our lives. The diagram looks like this:

The blue line (which should be smooth: forgive my electronic drawing ability) shows that the area of intellectual, purposeful and emotional achievement has been constrained by having sought to consume to over-capacity in the material area. And, the more we over consume the more the relative impact of that constraint is, I suggest. That is because of a simple rule that is well known to conventional economists, which is called the law of diminishing marginal returns. This is not a perfect rule: it is a model and like all models it has flaws, but within reason it holds true. It says that as one has more of something (anything, it does not matter what) the value you attribute to each additional unit of that thing you acquire falls.

Basic instinct says that this is usually true. Some would argue that cash avoids the rule because additional cash simply provides the ability to substitute between different forms of consumption. But I’m not even sure that is true: I have no doubt at all that an additional pound, euro or dollar is worth more to a person on low pay than to a person on high pay. If that is the case then relatively speaking as the excess consumption rises then the impact on emotional, intellectual and spiritual life increases until it is quite possible that it could induce a crisis in society, or in education and all through a lack of apparent meaning because consumption has become the god we worship. Does that sound familiar? The result is that over consumption gives rise to an increase in material will being and yet a loss in the overall sense of well being – call it happiness if you like. It is a phenomenon well known amongst those now observing developed economies.

It is my belief that the goal of human life is to achieve one’s potential: to seek to explore the possibilities available to you to the full within the constraints placed upon you. So, logically, you would want your area of achievement to approach the outer circle of your limit of possibility.

The clear implication of the model being proposed here is that the green area in the diagram is better for the person who enjoys it than the red area: it is not just that they appear to have more, they have come closer to fulfilling their potential for achievement, and that is their aim.

That though begs the question, is there a limit to possibility? And does that mean achievement is constrained? It is this question that fundamentally changes the approach used here from that offered by conventional economics at this time. Conventional thinking is that the individual should think their consumption unconstrained, even though the reality is otherwise. In the economics proposed here is the individual is recognised to be constrained they then recognise a different goal – which is to work to achieve within the constraint. And, of course, the answer is that the individual is constrained, and there is a limit to possibility that they must accept.

To some degree this is internally imposed by our finite nature.

It is also externally imposed. The simple reality is that we cannot consume without limit. The world is finite. Like us it has a beginning and an end. Of course, like us it also has a capacity to regenerate itself. But ultimately the laws of entropy apply: there is a limit to what is possible.

The calculation of that limit at a point of time would be complex, and has exercised me much over the years. Variables in the question would include some things unknown (which adds to the complexity) such as the relative age of the world. If it is now 99.9% through its period of human habitation we need not worry too much about human exploitation of resources: there will be enough to go round for all of us who remain. If, as most of us would I think hope, the life span for humans on earth might be somewhat longer than that then we might well take a different view. The state of biodiversity, the number of people on earth, the amount of energy we might receive from the sun and our ability to convert it, the state of our knowledge, both technical and in the form of wisdom (which I think much undervalued) have impact, and so on. I’ll not seek to develop formulas here: suffice to say that however they fall out it is clear that at a point of time we will only have claim on a limited proportion of the material resources of the world if we are to leave the world intact for those future generations we hope to follow us.

In that case it is obvious that if we define our limit to achievement as involving the best available use of the resources available to us within the external constraints that are imposed by our own finite nature and the finite nature of the world then maximising our achievement within that constraint is not something that puts us in conflict with that finite world, it does instead mean we work with that world to realise the best that is possible in life. Seeking more within the constraints of the circle drawn here is not therefore a negative exercise – it is a positive one of achieving personal potential in a way that does not cause harm.

Two further assumptions then need be made. The first is that if this is the case the available resources of the world should be allocated equally subject to the impact of geography, which is a component factor in distribution of the benefit of those resources.

The second assumption informs the first, and is that no one has an a priori claim to well-being over another person, which is a way of saying that equality of opportunity is important, even if equality of outcome cannot be achieved.

Given these two assumptions it follows that there is a fixed material amount of resource we may each enjoy at a point in time. That defines a practical limit to achievement.